Why You Should Avoid Investing in the ‘Green Bubble’

Why You Should Avoid Investing in the ‘Green Bubble’

It’s been another tough week for the e-believers and climate change warriors. But my maniacal laughter has echoed far and wide with each blow.

First, I’d like to give you a rundown on what went wrong in the cause of saving the planet. Then we’ll get to how I think you should invest in the green bubble. (Hint: don’t.)

The first piece of nincompoopery comes from Bloomberg and the Financial Times. They both reported that the ‘World’s First Liquid Hydrogen Ship Debuts in Green Economy Boost’.

Kawasaki Heavy Industries launched the Suiso Frontier, meaning hydrogen frontier in Japanese, on Wednesday last week. There was much fanfare and the world’s environmentalists and e-believers oohed and aahed triumphantly.

The idea of the ship is simple. Although Japan lacks sufficient renewable energy resources, it can still become carbon neutral by importing hydrogen, which is emissions-free. The Suiso Frontier does just that.

There are a few familiar flies in the ointment. Converting water to hydrogen is very power-intensive. But doing that conversion in a place with plenty of renewable energy should be the solution.

Unfortunately, the hydrogen that the Suiso Frontier will be shipping from Australia will be made using coal…

For years the Australian climate warriors have complained that, even if they stop burning Aussie coal thanks to climate change policies, Australia’s coal exports still contribute to emissions overseas.

Now they’ll be able to complain about the opposite. Australia’s coal will be used at home to create hydrogen to satisfy another nation’s virtue signalling needs.

But that’s not what made me laugh about the story. It’s the single sentence buried at the bottom of the Bloomberg article about the Suiso Frontier’s own propulsion. Clearly someone from compliance had a word with the editor and they added the sentence in at the end.

You’ll never guess what powers the ‘World’s First Liquid Hydrogen Ship’.

Hint: It ain’t hydrogen.

One (diesel-powered) hydrogen ship doesn’t mean the green revolution is doomed. But it seems to me that the green revolution is looking a lot like the French Revolution. You have to ask ‘which one?’ Because they keep crashing and burning.

It’s all simply too flawed

The failures of the past finally caught up with climate campaigners at the UN climate summit in Madrid. Greta Thunberg managed to attend, just in time to see it end in failure on Sunday. No real action will be taken.

But it’s the why that’s juicy.

Did you know the purpose of the meeting was to devise a new emissions trading scheme? I didn’t. And I don’t think Greta would approve of the market solving climate change using supply and demand to find an equilibrium price for pollution.

The idea of these emissions trading schemes is twofold. First to encourage investment in carbon offsetting, which rewards offsetters by creating carbon credits. And second, they allow rich countries to pay poor countries to produce clean energy instead of cheap but dirty power. The rich countries buy the credits from the poor ones, who use the money to build solar instead of coal power plants.

It’s supposed to be more efficient that way, allowing us to minimise the cost of saving the planet overall. As though that’s what climate change warriors want…

There’s one big problem with the idea. The scheme proposed in Madrid has a predecessor from back in 1997. Remember the Kyoto Protocol? Well, the carbon credits scheme created back then has been an impressive failure.

Now you might think that a failure is why we need a new one. But not so fast.

Unfortunately, the countries duped into participating and investing in the old scheme want their past efforts and expenditure to be recognised in the new scheme. They want their old and almost worthless credits to be valid in the new system. They want old climate pledges to be honoured.

But the other countries don’t want to give those with Kyoto Protocol based credits a head start in the new carbon credit game. They want to restart the race from zero.

Thus, the standoff on the matter left the summit without an agreement. Countries which had generated a lot of credits at great expense, and countries which had bought a lot of them, ganged up on those with neither.

Of course the media blamed those stuck in the past, including Australia, even though neither side budged and the blame is shared equally. Australia had generated a lot of carbon credits by outperforming its Kyoto commitments. But nobody wanted to honour those credits in the new system.

But here’s the point. It looks like the green revolution of the past undermined the one of today.

It reminds me of the plot of Les Miserables, where revolution-weary Parisians refuse to join the latest protests. (It’s the only part of the story I like.) And let’s face it, if you can’t get Parisians to protest, your cause must be pretty damn bad.

Now the UN’s climate efforts are embarrassing. But nothing is ever as bad as it is at the EU.

Leaders from around the world recently called out the EU Commission’s climate change policies as being a form of ‘colonialism’ and protectionism instead of dealing with the climate.

The FT reports:

‘High-profile leaders including Jair Bolsonaro, Brazil’s president, his Indonesian counterpart Joko Widodo and Malaysia’s prime minister Mahathir Mohamad, have attacked EU plans to project its environmental values abroad through trade.

‘The outspoken Mr Bolsonaro and Mr Mahathir — whose countries stand to miss out on access to the EU market because of concerns over their environmental stewardship — have gone so far as to describe it as “colonialism”.’

The EU is basically using climate change as an excuse to impose trade barriers. Which was its founding purpose, after all.

But an ‘us and them’ approach is not going to solve a global problem. And the rest of the globe isn’t happy with the EU.

Only adding insult to injury, the IPO of oil megalith Saudi Aramco was a rip-roaring success. Oil is merrily going about its business while the climate change warriors fight each other.

So what’s going on here?

My broader point is the same as ever when it comes to the green bubble. It can’t even inflate itself properly, let alone keep your lights on. Investing is a terrifying idea.

Every government policy, every intervention, every subsidy, every innovation, every price, every protest, every ban, every tax, every emissions trading scheme, every carbon credit, and everything else is simply too flawed. They keep failing before they make any investors rich.

Until next time,

Nick Hubble,
For The Daily Reckoning Australia